HDFCLIFE is well placed to achieve its APE growth outlook and VNB margin & remains the top pick. Buy for target price of ₹900 (25% upside): BOB Caps

Resilient growth ahead on balanced product mix

▪ HDFCLIFE reported below expectations APE growth of 9.7% YoY in Q4FY25 (up 17% YoY in FY25)

▪ While margin grew 40bps YoY, APE to grow 17-19%; VNB margin of 26-27% in FY26-FY28, aided by better product mix and growth momentum

▪ We maintain BUY on HDFCLIFE with TP to Rs 900 (from Rs 893), implying 2.6x in FY27E P/EV. HDFCLIFE remains our top pick

Divergent growth in APE and VNB margins: HDFC Life reported its performance below estimates, with APE at Rs 51.9bn, up 9.7% YoY in Q4FY25 vs estimates of Rs 53.4bn. VNB grew 11.5% YoY to Rs 13.8bn vs estimates of Rs 14.0bn. However, margins improved by 40bps YoY in Q4FY25, despite higher share of ULIPs in the product mix. VNB margin stood at 26.5% in Q4FY25 vs estimate of 26.2% vs 26.06% in Q3FY25 vs 26.1% in Q4FY25. This was primarily on account of higher attachment of riders and protection to ULIPs, which makes the product margin-accretive. Management maintained APE growth guidance above the industry growth and that margins will be range-bound in the medium term. APE and VNB growth likely to remain moderate in 1HFY26 with pickup thereon in the 2HFY26, following a similar trend as of FY25.

Moderate APE growth: HDFCLIFE reported APE growth of 9.7% YoY in Q4FY25, impacted by slower individual APE growth (up 9.3% YoY); group APE rose 13.1% YoY in Q4FY25. For FY25, total APE rose 16.6% YoY, led by individual APE growth (up 18% YoY). Group APE grew 4.4% YoY on a lower base of FY24.

Surrender regulations: Impact of new surrender regulations was to the extent of ~30bps on VNB margins, which was managed through the pass-on to distributors. Management had earlier called out a 100bps impact from the change in surrender value regulations.

ULIP share continues to rise: Despite market volatility, ULIPs continue to gain share in the product mix, which stood at 40%, on total APE basis vs 31% in Q3FY25. Management aims to bring it down in the 35-36% range, going ahead.

Maintain BUY: We believe HDFCLIFE is well placed to achieve its APE growth outlook of 17-19% and VNB margin of 26-27% in FY26-FY28; aided by better product mix and strong growth momentum. Incremental focus on agency channel growth, along with increasing penetration in Tier-2 and 3 cities bode well. We maintain BUY on HDFCLIFE with TP to Rs 900 (from Rs 893), implying 2.6x in FY27E P/EV and continue to prefer HDFCLIFE as our top pick.

HDFC Life Q4FY25 Result Review 18 Apr 25 Research